Mahindra and Skoda Auto Volkswagen India close to signing MoU
Mahindra is reportedly in advanced talks to acquire a 50% stake in Skoda Auto Volkswagen India, a deal potentially valued at around USD 1 billion. Skoda Auto’s board of directors is currently in India for a crucial meeting, with an announcement expected soon. The partnership, if finalized, could significantly reshape the presence of both companies in the Indian automotive market.
Key aspects of the agreement
Negotiations have progressed and a preliminary understanding between both parties has been reached. Mahindra is pushing for a 50% stake, similar to its previous joint venture with Ford. This stake is seen as a non-negotiable aspect of the deal. Mahindra stands to gain substantial manufacturing capacity and access to Volkswagen’s advanced global technologies, including vehicle architectures, while Skoda Auto Volkswagen would benefit from Mahindra’s low-cost vehicle platforms and extensive industry influence in India.
Skoda Auto Volkswagen currently has an annual manufacturing capacity of 2.1 lakh units in India, with room for expansion. For Mahindra, this deal offers access to valuable global manufacturing assets and technologies. Meanwhile, Skoda Auto Volkswagen would leverage Mahindra’s low-cost vehicle architecture for future internal combustion engine and electric vehicle models.
Strategic importance for both parties
Mahindra’s broader strategy focuses on scaling its operations, potentially acquiring more land to increase its manufacturing capacity beyond 8.4 lakh units annually. For Skoda Auto Volkswagen, the collaboration with Mahindra provides access to cost-effective production methods and expertise in the Indian market. The automaker had committed an investment of €1 billion for India in 2018, but has struggled to meet sales targets, particularly with its mid-size sedans and SUVs under the India 2.0 initiative.
The deal offers the European automaker a lifeline to remain relevant in India’s competitive market. The potential joint venture could also influence the next generation of key models such as the Skoda Kushaq and Volkswagen Taigun. Initially planned on Volkswagen’s MQB A0 37 platform, cost overruns have led to discussions to switch these models to Mahindra’s New Flexible Architecture (NFA) platform. The vehicles could still retain Volkswagen’s engines but adopt Mahindra’s platform to control costs.
Synergies of electric and internal combustion vehicles
Both companies are keen to expand their EV offerings, with future electric models potentially benefiting from Mahindra’s NFA platform. This flexible architecture is designed for both ICE and EV powertrains, making it an attractive proposition for Skoda and Mahindra as they look to meet India’s evolving regulatory and environmental standards. Skoda Auto Volkswagen initially planned to invest heavily in two architectures – the MQB A0 37 for ICE models and the CMP 21 for EVs – but the collaboration could expedite development by focusing on Mahindra’s NFA platform for both categories.
Financial and technical terms under discussion
As the tough negotiations continue, sources suggest that Skoda Auto Volkswagen initially valued the deal at USD 2 billion, but the figure has been revised to between USD 800 million and USD 1 billion. A significant portion of Mahindra’s investment is expected to be in non-cash form, with the company offering its NFA platform as part of the deal along with cash contributions estimated at Rs. 4,000 crores to Rs. 5,000 crores. This investment is likely to be allocated to expanding capacity at Mahindra’s Chakan plant, although the exact details are still being discussed.
One of the most complex aspects of the negotiations revolves around the luxury brands under the Volkswagen Group. The group’s sales and marketing arm, which includes brands such as Audi, Porsche and Lamborghini, will remain separate from the joint venture. Audi, which currently sources vehicles from Skoda Auto’s Aurangabad plant, could transition to contract manufacturing under the new agreement.
Future perspectives
If the deal goes through, it could provide a much-needed boost to Skoda Auto Volkswagen to participate more actively in India’s emerging EV market and meet critical regulatory requirements such as CAFE standards by FY2028. Mahindra, on the other hand, would gain not just manufacturing capabilities but also a valuable partnership in global vehicle technology.
As discussions progress, both companies are working to iron out the details of the deal, which could reshape their strategies in India and beyond. However, the impact of the alliance on future models like the next-generation Skoda Slavia and Volkswagen Virtus remains unclear.
Both Mahindra and Skoda Auto Volkswagen are yet to release any official statements on the matter.